Introduction
When you’re getting a mortgage, lenders look at your credit score to decide if you’re eligible for a loan and at what interest rate. The way these scores are calculated for a mortgage can be a bit specific. Here’s a breakdown of the key concepts Fannie Mae uses: Representative Credit Score, Average Median Credit Score, and information regarding Foreign Credit Reports and Credit Scores.
Representative Credit Score
The representative credit score is a single number that represents your creditworthiness for the mortgage. It’s used to check if you qualify for certain types of loans and to set the cost of your loan. Here’s how it’s figured out:
1. Lenders usually try to get at least two credit scores for each person applying for a mortgage.
2. They then pick one score for each person. If there are two scores, they use the lower one. If there are three, they use the one in the middle. If the middle two scores are the same, they still use that score. For example, if your scores were 700, 680, and 680, your score for this purpose would be 680. If they were 700, 700, and 680, it would be 700.
3. If there’s just one person getting the mortgage, their score is the representative credit score. If there are multiple people, the lowest score picked in step 2 from any of the applicants is used. If one of the applicants doesn’t have a credit score, only the scores of those who do are considered.
Average Median Credit Score
In some cases, instead of using the representative credit score, an average of the middle scores from each applicant is used to make sure the loan meets minimum credit score requirements. Here’s how that works:
– First, find the middle score for each person applying for the mortgage.
– Then, calculate the average of these middle scores to get the score for the whole loan.
For example, if one borrower has scores of 590, 605, and 648, their middle score is 605. If another borrower has scores of 661, 693, and 693, their middle score is 693. To find the average median credit score for the loan, add the two middle scores together (605+693) and then divide by 2, which equals 649.
In another example, if one borrower has scores of 590 and 605 (with no third score), their median score is 590. If the other borrower has the same scores as before, the average median credit score for the loan would be calculated by adding 590 and 693 together and dividing by 2, which equals 642.
Foreign Credit Reports and Credit Scores
If you’re applying for a mortgage but your credit history is from a country outside the U.S., Fannie Mae allows lenders to use that foreign credit report to understand your credit history. However, there are a couple of things to keep in mind:
– If the foreign credit report includes a credit score, it can’t be used to determine if you qualify for a mortgage unless it’s a classic FICO score, which is the type required by Fannie Mae.
– If you don’t have a credit score that meets the requirements, lenders will look at other aspects of your credit history to make their decision. This is detailed in a different section about nontraditional credit histories.
Recent Related Announcements
Fannie Mae regularly updates its guidelines and policies. The announcements listed below are some of the most recent that relate to how credit scores are determined for a mortgage loan:
– Announcement SEL-2022-09 issued on October 05, 2022.
– Announcement SEL-2021-08 issued on September 01, 2021.
These updates may include important changes or clarifications on how credit scores are evaluated, so it’s a good idea to be aware of them.
References
For more details, visit Determining the Credit Score for a Mortgage Loan of the Fannie Mae Selling Guide.